Senate works on short-term deal for debt ceiling, shutdown

Senate leaders said late Monday that they were closing in on a deal to raise the federal debt limit and end the two-week-old government shutdown, just days before the Treasury Department exhausts its ability to borrow.

The emerging agreement would extend the Treasury Department's borrowing authority until Feb. 7, reopen the government and fund federal agencies through mid-January, the Washington Post reported, citing aides and lawmakers familiar with the negotiations.

In the meantime, policymakers would launch a new round of talks over broader budget issues in hopes of developing a plan to replace deep automatic spending cuts known as the sequester before Jan. 15. That is when the next round of sequester cuts is scheduled to slice an additional $20 billion out of agency budgets, primarily from the Pentagon.

The framework under consideration includes only minor changes to President Barack Obama's signature health care law, falling well short of defunding it or delaying major provisions as conservative Republicans initially sought. Instead, Republicans would get only new safeguards to ensure that people who receive federal subsidies to purchase health insurance under the law are eligible to receive them.

But talks were hung up over another provision, aides and lawmakers said: a demand by Democrats to delay the law's "belly button tax," a levy on existing policies that is set to add $63 per covered person — including spouses and dependents — to the cost of health insurance next year. Republicans derided the proposal as a special favor to organized labor.

Meanwhile, Democrats were resisting a GOP demand to deny Treasury Secretary Jack Lew the use of special measures to extend the Treasury's borrowing power past Feb. 7. That would give Congress a firm deadline for the next debt-limit increase, with no wiggle room for Treasury Department accountants.

Despite those points of contention, Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., appeared confident that they had developed a framework that could win the approval of Congress and spare the nation from a first-ever default on the national debt.

"We've had a good day," McConnell said in a speech closing the Senate for the evening. "I think it's safe to say we've made substantial progress and we look forward to making more progress in the future."

Reid agreed. "We've made tremendous progress. We are not there yet, but tremendous progress. And everyone just needs to be patient," he said. "Perhaps tomorrow will be a bright day."

The big question mark Monday evening was whether the emerging agreement could win the approval of the Republican-controlled House, where a small bloc of conservatives has managed to direct GOP strategy.

While McConnell and Reid were at work on a bipartisan compromise, House Budget Committee Chairman Paul Ryan, R-Wis., was continuing to promote a more partisan bill that would lift the debt limit for only six weeks.

House Speaker John Boehner, R-Ohio, met at midafternoon with McConnell and then met with his own leadership team. Afterward, Majority Whip Kevin McCarthy, R-Calif., declined to say what path the House would take.

"There's a lot of different options we still have," McCarthy said, adding that passing the Ryan plan is "always a possibility."

After weeks in which no one was negotiating about anything, Monday was a day of near-constant activity. It began with a two-hour gathering of a bipartisan group of 12 senators led by Sen. Susan Collins, R-Maine, the primary author of a separate proposal that appeared to gain strength Friday before fizzling amid Democratic opposition over the weekend.

After that meeting, the Republican members briefed McConnell and the Democrats briefed Reid. Collins said the group was "continuing to discuss the parameters of a deal" but acknowledged that "there really is a focus on leadership right now."

Later, Reid ventured twice from his office just off the Senate floor, around the corner and down the hall to McConnell's office, where the two spoke face to face. At midday, McConnell and Boehner met — the speaker was spied briefly as he made his way down a back hallway from his office to McConnell's suite for a 25-minute update.

The White House had announced in the morning that Reid, McConnell, Boehner and House Minority Leader Nancy Pelosi, D-Calif., would come downtown at 3 p.m. to brief the president on their progress. But that meeting was postponed amid concern that it would interrupt the talks just as they were making progress.

With lawmakers trickling slowly back into Washington after a weekend at home, Republican leaders in both chambers decided to delay briefing rank-and-file lawmakers about the day's developments until everyone was in town this morning.

It was unclear how things would proceed from there.

Sen. Ted Cruz, R-Texas, the ringleader of the failed effort to attack the health-care law, waved off questions from reporters about whether he would try to block the Senate from approving an agreement, if one were reached.

"We need to see what the details are," he said repeatedly.

But Sen. Rand Paul, R-Ky., another conservative, said he has little appetite for obstruction, even if he does not like the final deal. "We need to get an agreement and open the government back up," he said.

Still, Sen. Bob Corker, R-Tenn., who has been close to the talks, acknowledged that the emerging agreement would be "a tough vote." As talks intensified, Obama warned that if the standoff is not resolved by Thursday, when the Treasury Department runs out of borrowing authority, "we stand a good chance of defaulting."

U.S. financial markets fell slightly in morning trading but then stabilized. The Standard & Poor's 500-stock index and the Dow Jones industrial average each dropped about 0.5 percent in the first 90 minutes of trading before rebounding to close with gains.

For now, though, the fear of economic harm produced warnings from around the globe that the United States must not permit a default.

In Britain, Jon Cunliffe, who will become deputy governor of the Bank of England next month, told members of Parliament that banks should be developing contingency plans to deal with a U.S. default if one happens.

And Chinese leaders called on a "befuddled world to start considering building a de-Americanized world." In a commentary Sunday, the state-run Chinese news agency Xinhua blamed "cyclical stagnation in Washington" for leaving the dollar-based assets of many nations in jeopardy. It said the "international community is highly agonized."

Christine Lagarde, the International Monetary Fund's managing director, spoke with concern about the disruption and uncertainty on Sunday, warning of "a risk of tipping, yet again, into recession" after the fitful recovery from 2008.

Information from the New York Times and Associated Press was used in this report.